How FMCG firms can Grow During High Inflation

Fast Moving Consumer Goods (FMCG), are products that are sold quickly at relatively low cost. Though the absolute profit made on FMCG products is relatively small, they generally sell in large quantities, so the cumulative profit on such products can be large. Examples of FMCG generally include a wide range of frequently purchased consumer products such as toiletries, soap, cosmetics, teeth cleaning products, shaving products and detergents, as well as other non-durables such as glassware, light bulbs, batteries, paper products and plastic goods. FMCG also include pharmaceuticals, consumer electronics, packaged food products and drinks. When inflation rises, prices of packaged consumer goods also rise.

Strategy for Large Industries:-

By large industry here it means having a large customer base and are widely spread throughout the nation. Like Bharti having a Mobile customer base of nearly 66.83 million subscribers.

When the consumers are in large number even a small margin will still yield to high profits. Hence instead of increasing the price of commodity in same proportion the industries can absorb a large portion of the cost escalation and passing down a small part of input cost rise to the consumer. For instance, vegetable oil prices have shot up by nearly 40% in the last one year, but Wipro Consumer Care has taken a price mark-up of just about 14%, that too in two phases. The rest of the raw material cost escalation has been absorbed by the company. Take another example. Parle Agro has managed to maintain the price of the oldest SKU (stock keeping unit), ie 200 ml, of Frooti and Appy, which has been selling at a maximum retail price of Rs 10 for almost 10 years.

By doing so the large corporates poses a stiff competition for other such industries, which in turn helps the consumer and the economy as well.

A certain amount of inflation can be absorbed as long as the market growth rate continues to be in double digits. The same may not be true if growth rate slows down. Companies too believe, that because of growing market the business that a company can generate in the next 1-2 years is more than what one could have generated over the last 5-10 years.

Strategy for Small Scale Industries:-

Here I am talking about Industries whose customer base in limited to a particular region. There customer base is limited. Its hard to survive for such industries when Inflation is high and there is neck to neck competition in market.

When prices of almost everything are going up, be it property, talent, transportation or even raw material. There are only two options before a small organization. Option one, to bear losses till the market stabilizes again and option two, to increase volumes to be able to absorb rising costs.

In first case industries starts cutting down on production to minimize losses. Which further throw the SSI out of the market.
For second case to be implemented government support plays an essential role. Govt. can impose more taxes on large industries or they can provide machinery and required technology in relatively cheaper rates. Or other such policies.

I had given a good amount of thought how small industries will survive in such a scenario, but was not able to come up with a strong idea. What I strongly feel SSI can survive with, supporting government policies and by the far sighted vision of the entrepreneur. One should give deep thought and an insight before starting a SSI, making the industry to be strong enough to survive any such fluctuation.